* Threat of ban in South Korea has shaken cryptocurrency
* But experienced investors keep calm, say getting around
* Ban risks triggering cryptocurrency outflow, creating
By Dahee Kim and Marius Zaharia
SEOUL/HONG KONG, Jan 18 (Reuters) – Threats of a potential
cryptocurrency trading ban in South Korea have scared many
investors away, but some veterans of the young market are
defiant, saying restrictions would be relatively easy to
Although the cryptocurrency market lost about $200 billion
this week, or a third of its value, these investors – known
within the community as “hodlers” after a misspelled meme that
went viral during Bitcoin’s early days – are used to
China’s shutdown of local exchanges in September, for
instance, caused a 50 percent drop in Bitcoin, but prices
rebounded eight-fold to almost $20,000. Currently valued around
$10,000, Bitcoin could be poised for a similar
whirlwind this time around, some say.
“In case the government shuts down all local exchanges,
investors can always go abroad and open an account there,” said
a South Korean student who declined to be named because of legal
risks. “I can ask my friends who study abroad or travel there
myself. It’s not that big of a problem.”
Cryptocurrency experts say the student probably has good
reason to be relaxed. A ban could discourage new market
entrants, but the anonymity of buyers and sellers and the
ability to move digital assets anywhere in the world with a
click makes it hard to impose restrictions on existing
participants without a global consensus.
Places like Singapore and Hong Kong maintain light
regulations, while neighbouring Japan has encouraged a vast
ecosystem of companies and investors around digital assets by
pioneering a set of rules for the industry. Germany has said
national restrictions may be useless.
VPNs, OFFLINE WALLETS
According to industry experts, the first step to
circumventing a ban is hiding IP addresses from authorities via
virtual private networks (VPNs).
Traders can then continue business as usual. Decentralised
exchanges, such as Shapeshift or Stellar Dex, do not require
identification and can be accessed from anywhere.
Cryptocurrency wallets such as Exodus and Jaxx are linked to
such exchanges, so trading and storing the assets can still be
anonymous. Authorities in countries with strong legal
protections may need a warrant to check computers or smartphones
for proof of such activity.
Even then, unless caught in the act, the holder can claim no
trading has taken place since the legislation was approved and
has forgotten the password for the wallet.
Some decentralised exchanges offer derivative products that
allow betting on the price of a cryptocurrency against a fiat
currency, including the Korean won and Chinese yuan. But
cashing out in fiat is not possible on such exchanges.
An option in that case is to trade all cryptocurrencies for
a top one such as Bitcoin, Ethereum or Litecoin, and sell it at
one the 2,064 crypto ATMs in 61 countries, although the
transaction fees can exceed 10 percent. If need be, coins can be
stored on offline “wallets” the size of a USB stick.
Alternatively, holders can open bank accounts in countries
that have not banned Bitcoin, then join a local centralised
exchange where they can trade cryptocurrencies for fiat.
“I hold everything in a hard wallet the size of my thumb. I
have copies of my private keys in a safe. I have accounts on
four exchanges on three continents. If any government wants my
money, good luck to them,” said a Hong Kong-based investor who
claims to hold “about $1 million” in various cryptocurrencies.
A 30-year-old nurse in Seoul said she had already switched
to Hong Kong-based exchange Binance before the government’s
warnings hit the market. Company officers at Seoul-based
exchanges say, anecdotally, such moves have accelerated.
“All this could lead to serious money outflow and only the
government is not aware of it,” one officer said, requesting
South Korea accounts for between 5 and 15 percent of daily
Bitcoin trading. The value of all Bitcoins is around $200
If opening accounts overseas proves difficult, friends,
family or the local Bitcoin community can help. Another option
is to find someone with access to an exchange – preferably using
encrypted social media apps such as Whatsapp or Telegram – and
sell to them at a discount. But fraud is a risk.
“There could be a black market where people who can cash out
offshore can pay you in won for your Bitcoins,” said Aurelian
Menant, chief executive of Hong-Kong based exchange Gatecoin.
But that leaves the door open to “dodgy stuff,” Menant said,
adding that the fear of scams in the aftermath of a ban may
deter new investors, potentially shrinking Korean trading
volumes “from billions to millions.”
(Reporting by Dahee Kim in SEOUL and Marius Zaharia in HONG
KONG; Writing by Marius Zaharia)